(Appeared in the February 25, 2004 edition of the Reston Connection.)

After weeks of floor speeches denouncing Governor Mark Warner’s proposals for tax reform and for the biennial budget, Republican legislators have finally acknowledged that revenue enhancements are necessary to prevent massive cuts to core government services. Reality is finally settling in on most legislators who realize that the state will struggle to meet its 6.7% projected revenue growth with no possibility of getting to the double digits of growth that would be necessary to balance the budget without a tax increase or massive cuts to core services.

While there had been a steady stream of criticism of the Governor for having waited until after the election to announce his tax and budget plan, Republican leaders waited until the last day for action on revenue measures to spring their hastily conceived plan. Since the Finance Committee had killed all the Governor’s tax proposals, the House would have been faced with cutting another billion dollars from an already lean budget had they not come up with a revenue enhancement of their own.

Their proposal introduced at noon on Friday the 13th was rushed through the Finance Committee by 6:00 p.m. It proposes to end certain sales tax exemptions. Although exemptions had been looked at by several tax study committees over the years, none had proposed to end them. A Financial Impact Statement was not available on the bill. Extrapolating figures from an early 1990’s study, the revenue estimate was set at $520 million although everyone recognizes that is just a guess. No analysis of its impact on business activity or employment has been made. I have never seen a tax bill pass with so little information or justification to support it.

The political “spin” being applied to the proposal is that it would tax businesses rather than individual taxpayers. In an event on the floor of the House of Delegates that most legislators said they thought they would never witness, I quoted Grover Norquist, the anti-tax guru, who said about a similar proposal in Congress, “…corporations don’t pay taxes – people pay taxes. All taxes levied on businesses are expenses that simply become incorporated into the prices of their products or services.”

For Republican legislators to go after their political base to raise taxes seems odd although some point out that there is already a split between business interests and House Republicans over the Republicans’ inability to govern.

The economic impact of their ill-conceived tax plan is rapidly becoming evident. The hit to an already ailing airlines industry and to research and development funding critical to economic recovery are clearly counter-productive. The failure of leadership among House Republicans and the lack of any plan to solve the state’s budget plight and maintain its triple-A bond rating are painfully evident.

In contrast, Senate Republicans and Democrats working together have crafted a carefully developed plan that restores the revenues of the state by $1.8 billion and provides funding for essential core services. When the mad dogs of the House meet the Senators in a conference committee to resolve their differences over the budget, we can only hope that an even fuller reality will creep into the discussion.